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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 950.00 | ACUITE A+ | Stable | Downgraded | Negative to Stable | - |
| Non Convertible Debentures (NCD) | 359.74 | ACUITE A+ | Stable | Downgraded | Negative to Stable | - |
| Non Convertible Debentures (NCD) | 75.00 | PP-MLD | ACUITE A+ | Stable | Downgraded | Negative to Stable | - |
| Non Convertible Debentures (NCD) | 250.00 | Provisional | ACUITE AA- | Stable | Downgraded | Negative to Stable | - |
| Total Outstanding Quantum (Rs. Cr) | 1634.74 | - | - |
| Rating Rationale |
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Acuité has downgraded its long-term rating to ‘ACUITE A+’ (read as ACUITE A plus) from 'ACUITE AA-' (read as ACUITE double A minus) on the Rs. 950.00 Cr. bank facilities of Tourism Finance Corporation of India Limited (TFCI). The outlook is revised from 'Negative' to 'Stable'
Acuité has downgraded its long-term rating to ‘ACUITE A+’ (read as ACUITE A plus) from 'ACUITE AA-' (read as ACUITE double A minus) on the Rs. 359.74 Cr. secured redeemable Non-convertible debentures issued by Tourism Finance Corporation of India Limited (TFCI). The outlook is revised from 'Negative' to 'Stable' Acuité has downgraded its long-term rating of ‘ACUITE PP-MLD A+’ (read as ACUITE Principal Protected Market Linked Debentures A plus) from 'ACUITE PP-MLD AA-' (read as ACUITE Principal Protected Market Linked Debentures double A minus) on the Rs. 75.00 Cr principal protected market linked debentures of Tourism Finance Corporation of India Limited (TFCI). The outlook is revised from 'Negative' to 'Stable' Acuité has downgraded its long-term rating of ‘ACUITE Provisional AA-’ (read as ACUITE Provisional double A minus) from ‘ACUITE Provisional AA’ (read as ACUITE Provisional double A ) on the Rs. 250.00 Cr proposed secured redeemable Non-convertible debenture issued by Tourism Finance Corporation of India Limited (TFCI). The outlook is revised from 'Negative' to 'Stable'.
Reason for downgrade The revision in rating is primarily on account of deterioration in asset quality along with low provisioning coverage ratio and its resultant impact on the financial risk profile of the company. TFCI reported higher GNPA & NNPA levels at 3.92 percent and 2.95 percent respectively as on March 31, 2023 as compared to 0.74 percent and 0.37 percent respectively as on March 31, 2022 which further deteriorated to 5.35 and 4.16 percent respectively in June 2023. Acuite however notes that this surge in GNPA and NNPA levels is solely out of three large account for which resolution is currently underway. Acuite also notes that stressed assets (GNPA + SR accounts) as a percentage to its earning assets rose to 6.16 percent as on June 30, 2023 from 4.11 percent as on March 31, 2022. The rating is also constrained by drop in AUM over the years. AUM levels stood at Rs.1,584 Cr as on June 30, 2023 in comparison to Rs,1,621 Cr and Rs.1,834 Cr as on March 2023 and March 2022, respectively. Acuite further takes cognizance of TFCI’s large exposure towards tourism sector. The rating continues to factor in long track record in financing tourism and related sectors, experienced management, healthy capitalisation levels and resource raising ability. The rating also takes into account its healthy capitalization with CAR levels of 62.65 percent coupled with low gearing levels of 0.98 times as on Mar 31, 2023 (CAR 54.59 percent and gearing 1.36 times as on March 31, 2022). |
| About the company |
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TFCI is a Delhi-based NBFC-ND-SI, incorporated in 1989, as a Public Financial Institution (PFI) to cater to the financial needs of the tourism industry. The company is listed on Bombay Stock Exchange and National Stock Exchange. Since September 2018, there have been significant changes in the promoters’ shareholding, with a stake dilution by IFCI Ltd., Life Insurance Corporation of India and other nationalized banks during FY19. As a result of this, the new incoming shareholders like India Opportunities III Pte Ltd. & Tamaka Capital (Mauritius) Ltd. (managed by Ares SSG, a global Alternate Investment manager with approx. $197 billion of assets under management) and Mr. Koppara Sajeeve Thomas, as promoter group along with existing promoters, together held 51.58 percent as on March 31, 2019 of the total shares in the company. Since March 2019, Redkite Capital Pvt. Ltd., erstwhile shareholder of TFCI also started diluting its stake and in July 2020, it has been classified as public shareholder under regulatory approvals. As on March 31, 2023, Life Insurance Corporation of India, the Oriental Insurance Co. Ltd., as promoters & Mr. Koppara Sajeeve Thomas and Pransatree Holdings Pte. Limited as promoter group, hold 17.96 percent stake in the company.
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| Standalone (Unsupported) Rating |
| ACUITE A+/Stable |
| Analytical Approach |
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Acuité has considered the standalone financial and business risk profile of TFCI to arrive at the rating. Further, the rating also takes the support of the presence of internal credit enhancement proposed in the form of Debt Service Reserve Account (DSRA) and the Structured Payment mechanism. The rating factors in the Structured Payment Mechanism (SPM) put in place by TFCI to ensure timely availability of funds for servicing of debt obligations. The rating on the NCDs is secured by the presence of Structured Payment Mechanism, i.e. 15per cent of the principal amount will be served as DSRA and this would be provided in the form of fixed deposit. TFCI shall ensure that there is adequate funds to meet scheduled interest and principal obligations at T-5 days (T is the due date). |
Key Rating Drivers
| Strength |
| Established track record of long term funding; moderate business volumes along with gradual efforts to diversify into other sectors
TFCI is promoted by Life Insurance Corporation of India (LIC), the Oriental Insurance Co. Limited, Mr. Koppara Sajeeve Thomas and Pransatree Holdings Pte. Limited. The promoters and promoter group shareholding stood at 17.96 percent as on Mar 31, 2023. Mr. Koppara Sajeeve Thomas, Director, is an experienced banker with over three decades of experience in retail and corporate banking, Capital Markets, Treasury and Risk Management. TFCI’s loan book stood at Rs. 1621 Cr. as on Mar 31, 2023 as compared to Rs. 1,834 Cr. as on March 31, 2022. TFCI disbursed Rs. 560 Cr. in FY2023 as compared to Rs. 277 Cr. during FY2022. Acuité believes that TFCI will continue to leverage its established position, proven underwriting skills in project financing and expertise of management to consolidate their position in the domestic lending sector. Prudent funding profile underpinned by low gearing and mix of medium term and long term borrowings TFCI’s gearing has improved to 0.98 times as on Mar 31, 2023 from 1.36 times as on March 31, 2022 and 1.72 times as on March 31, 2021. Networth of TFCI, mainly comprised accumulated reserves and stood at Rs. 1017 Cr. as on March 31, 2023 from Rs. 936 Cr. as on March 31, 2022. TFCI's Capital adequacy ratio has also improved to 62.65 percent as on Mar 31, 2023 from 54.59 percent as on March 31, 2022 (March 31, 2020: 39.87 percent), with Tier-1 at 62.30 percent, providing enough headroom to scale up its loan book. Since most of TFCI’s assets are long term loans, TFCI’s borrowing profile is largely constituted of medium to long term borrowings. The total borrowings stood at ~Rs. 998 Cr as on Mar 31, 2023. The company has a positive mismatch in asset liability mismatch statement as on Mar 31, 2023. The bank borrowings contributed 63 percent and the rest is funded through other capital market instruments. Notwithstanding the wholesale lending, TFCI continued to be conservatively geared and has adequate headroom to meet near term business requirements.
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| Weakness |
| Weak asset quality
TFCI’s loan book comprises long term loans (including project loans) primarily to tourism and tourism related sector. Since these loans are usually for activities such as the construction of hotels, etc. the average ticket size is high with individual exposures going beyond Rs. 75 Cr in certain cases. TFCI's loan book is highly concentrated to company’s top 20 borrowers. Given that wholesale exposures are chunky in nature, slippages in few accounts can lead to significant asset quality deterioration. GNPA and NNPA of TFCI had increased to 3.92 percent and 2.95 percent as on March 31, 2023 respectively. GNPA and NNPA was 0.74 percent and 0.37 percent as on March 31, 2022 on account of selling off of two accounts ARC. TFCI’s stressed assets as a percentage to its earning assets increased to 4.94 percent as on March 31, 2023 from 4.11 percent as on March 31, 2022. It further deteriorated to 6.16 percent as on June 30, 2023 on account of 3 cases slipping into NPA. While Acuite takes cognizance of TFCI’s asset quality stress, the company is expecting resolution of few high ticket stressed assets during FY2024 which might ease asset quality/ profitability pressures. TFCI has made ECL provisions of Rs.19 Cr. for its Gross NPA that stood at of Rs. 84 Cr. as on June' 23. Acuité believes that the ability of the management to curtail incremental slippages in asset quality and maintain the growth momentum in its loan book will remain key monitorable. Moderation in AUM TFCI has witnessed a down trend in its AUM in the past two years where total loan portfolio of TFCI declined to Rs. 1,584 Cr. as on June 30, 2023 from Rs. 1,621 Cr. as on March 31, 2023 and further from Rs. 1,834 Cr. as on March 31, 2022. The decline in AUM was majorly on account prepayment of loans. This in-turn has affected their top line and the company has seen a decline in its Interest Income and Net Interest Income in FY2023. The exposure of TFCI is mostly associated with established and reputed brands, which partly mitigates the risk. Any further slowdown in economic activities will impact the business, thereby affecting the cash flows of borrowers and impeding their ability to meet their commitment in a timely manner. |
| ESG Factors Relevant for Rating |
| Tourism Finance Corporation of India Limited (TFCIL) belongs to the Non-Banking Financial Companies (NBFC) sector which complements bank lending in India. Some of the material governance issues for the sector are policies and practices with regards to business ethics, board diversity and independence, compensation structure for board and KMPs, role of the audit committee and shareholders’ rights. On the social aspect, some of the critical issues for the sector are the contributions to financial inclusion and community development, sustainable financing including environmentally friendly projects and policies around data privacy. The industry, by nature has a low exposure to environmental risks. TFCIL has maintained adequate transparency in its business ethics operations as it can be inferred through its disclosures regarding its policies on related party transactions, vigil mechanism, grievance redressal committee and whistle blowing. Additionally, the company has defined a Code of Conduct to deter wrongdoings and to promote ethical practices. The company’s board has seven directors out of which three are independent directors and one female director. The Audit Committee of the board comprises four directors, all of whom including the Chairman are independent. TFCIL has adequate transparency with respect to its shareholders rights, which can be inferred by way of its disclosures in this respect. Since TFCIL is engaged in funding tourism infrastructure projects, it needs to formulate policies to invest in green and sustainable projects and also have a negative screening mechanism in its credit policy. Further, it also needs to assess its lending portfolio from an ESG perspective. As regards the social factors, the projects financed by TFCIL are expected to boost tourism in the country and generate employment in the sector. |
| Rating Sensitivity |
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| Material Covenants |
| TFCI is subject to covenants stipulated by its lenders/investors in respect of various parameters like capital structure, asset quality among others. |
| Liquidity Position |
| Adequate |
| As per the asset liability management statement as on Mar 31, 2023, TFCI has positive cumulative mismatch in near to medium term bucket. TFCI maintained unencumbered cash balance of ~Rs. 90 Cr. as on June 30, 2023. |
| Outlook: Stable |
| Acuité believes that TFCI will maintain a 'Stable' outlook over the medium term supported by its established presence in the microfinance segment along with demonstrated ability to grow its AUM while maintaining healthy asset quality. The outlook may be revised to 'Positive' in case of higher than expected growth in AUM while maintaining key operating metrics, asset quality and liquidity. The outlook may be revised to 'Negative' in case of any headwinds faced in scaling up of operations or in case of any challenges in maintaining its asset quality, profitability metrics and capital adequacy parameters around existing levels. |
| Other Factors affecting Rating |
| None |
| Key Financials - Standalone / Originator | ||||||||||||||||||||||||||||||||||||||||
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| Status of non-cooperation with previous CRA (if applicable): |
| None |
| Any other information |
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Supplementary disclosures for Provisional Ratings 1. Risks associated with the provisional nature of the credit rating In case there are material changes in the terms of the transaction after the initial assignment of the provisional rating and post the completion of the issuance (corresponding to the part that has been issued) Acuite will withdraw the existing provisional rating and concurrently, assign a fresh final rating in the same press release, basis the revised terms of the transaction. 2. Rating that would have been assigned in absence of the pending steps/ documentation The rating would be equated to the standalone rating of the entity: ACUITE AA-/ Negative 3. Timeline for conversion to Final Rating for a debt instrument proposed to be issued The provisional rating shall be converted into a final rating within 90 days from the date of issuance of the proposed debt instrument. Under no circumstance shall the provisional rating continue upon the expiry of 180 days from the date of issuance of the proposed debt instrument |
| Applicable Criteria |
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• Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm • Default Recognition: https://www.acuite.in/view-rating-criteria-52.htm • Non-Banking Financing Entities: https://www.acuite.in/view-rating-criteria-44.htm |
| Note on complexity levels of the rated instrument |
| In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’ s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in. |
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